ECC 32nd REPORT: COMMUNITY SHIPBUILDING INDUSTRY

HL Deb 10 July 1978 vol 394 cc1353-406

5 p.m.

Lord RHODES rose to move, That this House takes note of the Thirty-second Report of the European Commmunities Committee on the reorganisation of the Community shipbuilding industry (R/3216/77) (H.L. 188). The noble Lord said: My Lords, in moving that this House takes note of the Thirty-second Report of the European Communities Committee on the reorganisation of the Community shipbuilding industry, it is with the knowledge that there are people in this House who know more about the subject than I do, and I crave their indulgence. The noble Lord who chairs our Committee so efficiently must have been very persuasive to get me to agree to move this Motion. May I pay a tribute to him for the way in which for so long he has run that Committee so efficiently.

This is a sombre subject. I cannot cast it better than the shipping correspondent of The Times for this morning: As the slump moves into its fifth year—"— he is talking now about shipowning— the longest ever recorded—with freight rates insufficient to cover even operating costs, more shipowners are facing financial collapse with every month that passes. Governments already struggling with unemployment and bankruptcy in the shipyards are faced within the next two years with widespread collapses among shipowners and erosion of national shipping assets disposed of at knock-down prices If shipowners are not prosperous, one cannot expect orders for ships.

May I say a word of praise for what the Community have done in this connection. Sitting on this Committee, as I have done for several years, I have seen the attempts that the Commission have made to grapple with the problem of unemployment in the shipbuilding industry. I remember years ago I suspected that a document had been written by a young man just out of Oxford who had taken the job on at the Commission. He had put in all sorts of things which, if the document had gone through, would have meant political dynamite because he was talking about closing shipyards in Jarrow and Barrow.

We took a lot of painstaking evidence, written and oral, from all who are vitally interested in this subject. Our attention was drawn to the appalling state of affairs in the shipbuilding industry, not only in the Community but in the world. They drew our attention to the fact that never in the history of the industrial revolution has there been such a spate of orders placed for ships as in the years 1968 to 1973. In 1973 alone there were placed orders for 73 million tons. In 1975 the completions were running at 34 million tons. In 1976 the completions were high and then, as a result I suppose of the recession in world trade and the OPEC difficulties, the bottom fell out of the market. It is estimated at the present time that the excess production capacity in the world will be from 45 per cent. to 50 per cent. Not only that: there is still a backlog of orders of ships to come on the market.

In Europe it was traditional until the end of the 1950s that they built 70 per cent. of the world's fleet. Now it is from between 20 per cent. and 30 per cent. Japan, with its ruthless efficiency, now builds half the world's ships, but even Japan is in difficulties. I do not know whether noble Lords saw the item of news in the papers last week, which stated that a citizen of Hong Kong, a big shipowner who was honoured in recent months in this country, was reputed to have bailed out Tasebo, one of the big shipping companies in Japan, by placing orders there. So the difficulty is world-wide. New dynamic countries like Brazil, Korea and Mexico are all coming into the market to build ships. These countries, with a sense of purpose and centrally controlled, seem to have no difficulty in undercutting Western prices. Anyone who saw the television programme on ITV on South Korea could not fail to be impressed by what can be achieved by a sense of purpose.

What is the situation in the United Kingdom? The United Kingdom shipbuilding industry consists in the main, as I understand it, of British Shipbuilders and Harland and Wolff. Twenty per cent. of the annual merchant shipping output is sold to British shipowners which, incidentally, is 30 per cent. of the normal requirements. So the United Kingdom is, as a matter of course, a net importer. Between 1950 and 1975 employment in the British shipbuilding industry dropped by 45 per cent. Nevertheless, the industry has managed to survive on the basis of 1.2 million gross registered tons per annum since 1950. This decline has been accepted by the Government as a very important part of the difficulties that we are facing today, and there is the shipbuilding intervention fund of £65 million to assist the industry; and this year we have passed the Shipbuilding (Redundancy Payments) Act.

This communication we have received is known as the Davignon Act on the Continent. It is refreshing to see that he is a man of some energy, really trying to get to grips with the problems with which he is faced. He asked the Associated Western European Shipbuilders to make a forecast. They did so. The Associated Western European Shipbuilders comprise the EEC countries, Finland, Norway, Sweden, Portugal and Spain—a large organisation. They made a proposal that in 1980 the world would be building 12 million tons of ships based on the compensated formula. It would be 4 million for Japan, 4 million for Europe and 4 million for all the other countries, including South Korea, Brazil and Mexico. There will be 4 million for Europe; that is, for the Associated Western European Shipbuilders, of which 2.4 million tons would be the share of the EEC.

The communiqué also went into some detail as to what should be done with regard to making the industry more efficient and more competitive in world markets and, in so doing, hoping to supply a significant amount of ships required by the Community shipowners. I said before it is a serious attempt to get to grips with the problem and it should not be underestimated. What would it mean? It would mean a reduction in the existing capacity of some 4–6 per cent.; it would mean the loss of 75,000 jobs in shipbuilding alone; it would mean the loss of 30,000 jobs in the ancillary trades —not small beer, by any count. We do not know what the figure would be for this country as yet. The communiqué also makes nice, satisfying noises about re-training, re-deploying and stimulating demand by various means. It refers to safety regulations, to building more sophisticated ships and thereby taking on more labour; altogether making out that it is possible to do something along those lines. I hope it is.

I talked about the forecast of four for Japan, four for Europe and four for everybody else. How were those forecasts arrived at?—because before we can assess what they are getting at we need to know the criteria on which they were based. The first assumption was that 4 per cent. would be the growth rate for most countries in Europe. The second assumption was that the OECD would have a tremendous lot of influence in terms of international arrangements; but anyone reading his paper this morning or last week would know very well that the OECD meets in Paris tomorrow, and one of the items on the agenda is a complaint by Japan that the European nations have not done their share in terms of reaching an understanding about how much of the shipbuilding industry in Europe is redundant. So there is difficulty there. We can assume, too, that there is going to be no 4 per cent. growth on average over Europe: it will be more like 1 per cent. during the next two or three years.

Another assumption was that no countries other than Japan or countries in Western Europe would produce more than they are now. That is a ridiculous assumption. How can you curb what South Korea is doing? They are already going ahead to double their production in two years' time. The next assuption was that the proportion between members of the AWES and the EEC should remain at the same sort of ratio. That is also a very difficult thing to grapple with, because there is the question of what is our share and what is agreed to be done. These difficulties are enormous and should be approached with great caution.

There are also objections to what have become known as indicative targets. It was pointed out that the shipbuilding industry is cyclical. I do not know what opinions your Lordships have about that, or whether you think that the old cyclical trade movements apply any more. Personally, I do not. I do not think it is quite the end of the capitalist system yet, but I am perfectly certain that it is the end of Keynes. The second objection is the problem of dividing capacity among Member States. The shipowners who gave evidence to us were quite definite in their minds about what should be done. They agreed straight away that the production capacity should be curtailed because, after all is said and done, if they cannot get trade for the ships they have, what hope is there for ships that will be coming on the market? That is a quite legitimate question. Strategic considerations, too, were put up to us but I will not deal with those because they are outside the Treaty of Rome when it comes to military hardware.

The Committee noted in its findings that the general agreement on the Commission's analysis of the world situation was correct. The Committee believed that the Commission's objective to create a competitive European shipbuilding industry was also correct. The Committee also expect that national arrangements will still continue, such as "scrap and build". They also consider that the Community policy is highly desirable. The anxiety of British shipbuilders to survive and become competitive are not incompatible with negotiations conducted with the Community. Here may I say that we must get into our heads that the Community is our hope in terms of world negotiations. We cannot negotiate from our base any more and it will have to be done on a Community basis. If anyone wants a real example of how this works, let him look at the multi-fibre agreements, which have been so successful over the last two years. We really must get it into our heads that it must be through the Community that we make our case.

If there is no agreement in the Community itself, or if national programmes are pursued which conflict with Community policy, how can the Community make the world-wide negotiations that it should be making? It is a terribly serious business, this unemployment, for anyone who cares about our people and our country. And where are the serious efforts which are being made to think it through? My Lords, this is one; and I beg to move.

Moved, That this House takes note of the Thirty-second Report of the European Communities Committee on the reorganisation of the Community shipbuilding industry. (R/3216/77 (H.L. 188).—(Lord Rhodes.)

5.20 p.m.

Lord CAMPBELL of CROY

My Lords, the House will be grateful for the helpful introduction to the Thirty-second Report of the Select Committee by the noble Lord, Lord Rhodes. He speaks from a lifetime's knowledge of industry, and he himself has always displayed the greatest vigour in promoting British interests. He also has the experience of seeing at close hand the contraction of the textile industry in the North of England. At that time we were both Members of another Chamber; I was an observer, but he was right in the thick of it.

The report which we have before us draws attention to a meeting of the Council of Ministers on 27th June. In fact, the Council met and briefly discussed this subject, but has referred it to the permanent representatives in Brussels and, I understand, is due to consider the subject again on 25th July. So that this debate is still in time, before ministerial decisions are taken. I agree broadly with the conclusions of the Select Committee and I should like to deal with the subject in two parts: first, the world crisis in shipbuilding; and, secondly, the position of the United Kingdom; and I propose to put certain questions to the Government.

This is probably the only opportunity which Parliament will have of considering this subject in either Chamber before November. The analysis of the world situation is, I think, virtually agreed. There are already too many ships in existence. Nearly one-tenth of the merchant fleet is lying idle; I am not considering warships, because the building of warships is not included in this report. World shipbuilding capacity far exceeds the expected demand over the next seven or eight years, and it is two or three times larger than is necessary. I say "seven or eight years", because that is as far ahead as the General Council of British Shipping felt they could see ahead. The Western countries, including the partners in the EEC, are also at a disadvantage compared with other shipbuilding countries, because the labour costs are less, sometimes considerably less, in the Far East and elsewhere. I suggest that an orderly reduction in world shipbuilding, none the less, must be to everyone's long-term advantage, even countries such as South Korea who feel that they want to trade their own goods, in their own ships, built in their own yards. That is a short-term view.

The arguments which arise are three: first, how much should the reduction be; secondly, how is it to be done and, thirdly,—and perhaps most difficult of all—how is it to be shared between the shipbuilding industries? The process of negotiations continues this week, as the noble Lord reminded us, at the OECD in Paris. There the Western countries and Japan are mainly negotiating. All the shipbuilding countries in the world are not members of the OECD. Outline agreement with Japan, however, if it could be reached, would be a very useful start. I say "outline", because exact reductions in percentages will be difficult to secure. There is bound to be much haggling over the last percentage point where each individual country is concerned. Within these worldwide negotiations, co-ordination within the EEC is sensible and should be helpful. That is where the Commission and our Select Committee are agreed.

Where the Commission can be faulted—and I agree with the Select Committee on this—is that they have taken some assumptions, most of them apparently conjured out of the air, and tried to prescribe a precise formula upon them. In their communication of last December, they based their proposals on an estimate of 2.4 million compensated gross registered tons as being required to be produced within the EEC in the early 1980s. Those proposals would mean reducing the capacity of shipbuilding within the EEC by no less than 46 per cent. since 1975—that is, almost halving the capacity—and I am not talking about jobs. Jobs, of course, would be reduced on a larger scale. There are too many variable factors to make such precise forecasts possible.

Moreover, there are more considerations than have been taken into account by the Commission to be able to advocate so exact or certain a reduction. For example, I believe that the industry is cyclical by nature—a point which the noble Lord raised. My guess is that there will be an upturn in the mid-1980s. Even if, eventually, one managed to smooth out the cycles, the great swing that there was in the early '70s is bound to lead to another swing in the mid-'80s. There are also strategic considerations. The noble Lord desisted from mentioning them, but I think they must be mentioned, because they should be given more weight than the Commission have allocated to them.

When assessing the EEC's capacity and possible reductions in the 1980s, we must not overlook three new applicants to the EEC—Spain, Portugal and Greece; and in particular Spain. She will add significantly to the potential capacity when she joins the EEC, as I feel she will, in the near future. Most of the additional capacity in the 1960s and 1970s came from countries outside the EEC, notably Japan, South Korea and Brazil, and it is a valid argument that those countries which expanded inordinately during that period should bear the greater share of the reduction in the world which is now necessary. This applies particularly where the United Kingdom is concerned, because our capacity remained about the same, static, during that period. So that it would be unfair for us to be asked to reduce to the maximum amount, when we were not responsible for the speculative expansion which has occurred in the last 10 years.

As regards the general proposals of the Commission, I agree that there should be full use, where there are redundancies in shipbuilding areas, of the European Social Fund—for retraining, in particular, where it has helped in the past—and of the Regional Fund in those areas, for helping development and alternative jobs. Where it is not possible to agree with the Commission is in the precise amounts, because it is not possible, I believe, to make such an exact forecast as they have done.

My noble friend Lord Bessborough is the draftsman for the Committee of the European Parliament on Budgets, and in his interim opinion he has drawn attention to the massive sums which would be required if the proposals went forward on the scale suggested by the Commission. He has pointed out that there has been no proper consultation yet in the European Parliament of the effect that this would have on the Budget. My noble friend is with us today and I look forward to hearing him, if he speaks in the debate. But he made these points: first, that there appeared to be no basis for the cost per man in the calculations of the Commission in their communication; and, secondly, he asked why should a new job for replacing a redundancy in an ancillary industry cost half as much as a new job replacing one in the shipbuilding industry itself. That seems to be a quite arbitrary part of the calculations which the Commission have produced.

I come to the strategic part which particularly affects Britain. We have three former shipbuilding firms which were specialists in warship building—Vickers, Vosper Thorneycroft and Yarrow—and there are another three firms whose services are needed for naval shipbuilding but which also build merchant ships. So far as I know, the work of all six companies continues on the same lines under British Shipbuilders, all six companies having been nationalised. The naval demand should be much more in line with the capacity of our yards when one takes into account the exports in which we are successful—building ships for other countries, in particular Commonwealth countries.

The first question which I should like to put to the Government is this: Is it true that the Government are starting a scheme for building warships "on spec" and without individual orders, on the basis that they might find a place for them in our Navy, if they are not needed now or are not ordered eventually by a foreign country? There is another consideration—a strategic one—and that is the size of our merchant fleet. That size, and the building capacity for it, should not sink to dangerous levels where we could be held to ransom for supplies in peacetime, or could be seriously weakened in our carrying capability in war.

Now I turn to the British shipping industry because they are the customers, especially of our shipbuilding industry. May I remind the House that our shipping industry normally comes third in size in the world, and sometimes fourth. Japan and Greece are ahead; Liberia is the other one, but, as we all know, that is what is known as a flag of convenience. My point is that we are near to the top of the world league table so far as our shipping industry is concerned. There are many other industries in Britain where we are not in the top 10, but so far as the ownership and operating of ships is concerned we are near to the top. Our shipping industry brings in an enormous sum of money in terms of invisible earnings, in addition to the other advantages for our economy.

Over recent years, the United Kingdom shipping industry have placed 70 per cent. to 80 per cent. of their orders with the domestic shipbuilding industry. They have been a good customer of the United Kingdom shipbuilders. Consequently, the view of the shipping industry is important. The United Kingdom shipping industry have made it very clear that they consider that a reduction in shipbuilding capacity in Europe is necessary. Like others, they do not attempt the precision of figures that is aimed at by the Commission, but they regard overcapacity—the production of ships that are not wanted—as a threat to them. This leads to ships subsidised by the Government, as a consequence artificially cheap, being bought by competitors which can then undercut on freight charges during the lives of the ships and so capture United Kingdom business.

Returning to shipbuilding, the British shipbuilding industry is now about 90 per cent. nationalised in British Shipbuilders. In this connection I have more questions to ask the noble Lord. Recently we had passing through this House a Bill which became the Redundancy Payments Act. It provided for schemes of redundancy payments to men who were made redundant in British shipbuilding yards. Since that Act was passed, nothing has been announced. Therefore, may I ask the Government what is the latest position? When can we expect to hear of the first schemes under that Act? Thirdly, how will those schemes fit in with the EEC policy which has been put forward?

I turn next to the financial duties which have been imposed under Section 10 of the Aircraft and Shipbuilding Industries Act. Only last week, at col. 114 on 4th July, the Secretary of State for Industry set out in another place the financial discipline for British Shipbuilders during the current financial year. He instructed them to seek to limit their losses in the current year to £45 million. I should add that that figure appears to have been arrived at simply because that is British Shipbuilders' present estimate of what, tentatively, their loss is likely to be in the current year, but it assumes the availability of the announced intervention fund.

That brings me to subsidies. The intervention fund to help British Shipbuilders to obtain orders was announced last year, and both last year and this year limits have been set. The fund continues on an annual basis, and I am glad to say that it has been accepted as respectable by the EEC Commission and is not considered to be out of line with competition policies. The intervention fund is acceptable in crisis conditions, in accordance with the Fourth Directive. The United Kingdom is applying also for blessing from the Commission for a further subsidy scheme. This was reported in The Times, in one of the articles mentioned by the noble Lord, Lord Rhodes. Therefore, I put a further question to the Government: Unless the answer is confidential, can the noble Lord tell us what is the further subsidy scheme for which the Government are now trying to obtain the agreement of the Commission?

My last question to the Government is this: What are they themselves doing to encourage development in the shipbuilding areas so as to increase available alternative jobs? The Government have accepted that redundancies are inevitable, although they have not yet announced where they may take place. I hope, as I am sure that all Members of this House will hope, that any necessary redundancies will be carried out as painlessly as possible. The problem of additional unemployment occurring in areas where there is already a very high rate of unemployment is one which this House looks on with grave anxiety.

The subject of compensation for nationalisation is highly relevant here. Some of the firms which are due to receive compensation are in a position to invest and diversify in the areas concerned. That is where they have been operating in the past. May I ask the Government what is happening about compensation? The first significant news announced during the last few days was agreement on compensation for Swan Hunter. That appears to be the first compensation which has been agreed. Only a few weeks ago the noble Lord, Lord Robens, the chairman of Vickers, pointed out that formal negotiations for compensation in the case of his company had not even started and that as a result his company's investment programme was one-third less than it could have been.

There was much debate about this question over two years ago, especially in this House. The issue was not only fairness but also the loss of potential investment, probably in the very areas where new jobs are most needed. Therefore, may I ask the Government to give us the latest information they can about the timing of compensation negotiations, bearing in mind the assurances which were given from that Bench during the passage of the Aircraft and Shipbuilding Industries Act. I think no one will remember those assurances better than the noble Lord, Lord Winterbottom.

To sum up, I think the Government should aim for agreement on orderly reduction in world capacity in shipbuilding. They should participate in the co-ordination which will be necessary within the EEC but they should retain flexibility and resist commitments to precise targets years ahead.

Lord ARDWICK

My Lords, I did not want to interrupt the noble Lord in his speech but before he sits down I should like to ask him a question. In this House we are all concerned about the interplay between this Parliament and the European Parliament. The noble Lord mentioned the report which the noble Earl, Lord Bessborough, has prepared; I wonder whether he has also had access to the report which was prepared for the Economic Committee by my honourable friend Mr. John Prescott and to the report of the Social Committee. If he had, he would have seen that many of the questions that he put this afternoon are embodied in those reports to the Commission and indeed if he had been able to read the report of the debate (which he could not have done because the three-hour debate took place only on Wednesday and the reports arrived this morning) he would have seen that Viscount Davignon, the Commissioner responsible, gave a precise answer to the very question that he raised about why there was a projection of twice as much for people in shipbuilding who are displaced as for those in the ancillary industries. The simple answer is that shipbuilding machinery cannot be used for anything other than shipbuilding whereas the ancillary industries employ machinery which is applicable to other forms of engineering.

Lord CAMPBELL of CROY

My Lords, I regard that as an intervention; I think it was enabling me just to answer that and to finish my speech. Those points are really for my noble friend Lord Bessborough. I was able to read his report some time ago but curiously enough I have the complete record here of the debate which took place on the 5th July. Of course I have not been able to read it all, nor have I been able to read all the debates, but I have read what the noble Lord's friend Mr. Prescott said. From what the noble Lord has said, it appears that I have been asking all the relevant questions. Some of the answers may be available when we get round to seeing what the Commissioner, Viscount Davignon said, but I only received the record today and, as it is a long one, I have not yet had the opportunity wholly to consider it.

Lord ARDWICK

My Lords, unless the noble Lord's Danish and Dutch and German are as good as his French, he would not be able to read this report because it only exists in those particular languages. That is one of the disadvantages.

Lord CAMPBELL of CROY

My Lords, I must not abuse my opportunities of speaking and giving way. I would only say that my noble friend Lord Bessborough had told me that if I could follow French and German I should be able to understand most of it, and fortunately I am able to read both those languages.

Lord BRUCE of DONINGTON

My Lords, with the leave of the House I should like to ask the noble Lord one question arising from his speech. Did I understand him to say that 80 per cent. of the requirements of British shipowners were supplied by the shipbuilding industry? That is what I understood him to say, but perhaps he will correct that if necessary.

Lord CAMPBELL of CROY

My Lords, I am very glad to say that. The General Council of British Shipping have said it themselves and also the Government have said that in recent years the percentage has been between 70 and 80 per cent., but more recently it has been nearer 80 per cent.

Lord RHODES

My Lords, I should just like to correct that. The figures are that the shipbuilding industry is supplying ships to the Merchant Navy. They supply 80 per cent. of the shipbuilding capacity but that only represents 30 per cent. of the requirements of the British Merchant Navy. So, as I said in my speech, that results in the position that we are net importers of ships.

Lord BRUCE of DONINGTON

My Lords, I should like to enlarge on the point that I made to the noble Lord. I think that the noble Lord, Lord Campbell of Croy, is in fact misinformed. If he will refer to the Select Committee report, he will see that it says: Up to 80 per cent. of the industry's annual merchant output"— that is, the shipbuilding industry's output— is sold to British shipowners, representing about 30 per cent. of their total requirements",— 30 per cent. of British shipowners' requirements— thus the United Kingdom remains a net importer of ships".

Lord CAMPBELL of CROY

My Lords, I am very grateful for that correction. Of course it is that way round: it is that the British shipping industry is responsible for nearly 80 per cent. of the orders to the British shipyards and if I said it the other way round, I apologise.

5.46 p.m.

Viscount SIMON

My Lords, I too should like to say how grateful I and my colleagues on these Benches are for the exposition which the noble Lord, Lord Rhodes, has given us of this very useful report and to say how much I agree with him that the Commission's communication is a most valuable document. I had wondered what they had been doing but I was glad to hear that they have been going into this subject for some time. When the document came before us I thought it was rather late in the day, but it is satisfactory to note that the Commission have this very well in their sights and are taking steps to tackle the subject. As the noble Lord has said, it is quite impossible for us because, although I am happy to say that we are still a great shipping country and a not insignificant shipbuilding country, we cannot negotiate these things on our own.

In Britain we have already recognised that there must be a substantial reduction in our shipbuilding capacity. This was explicit when we were engaged in the nationalisation of the shipbuilding industry and it was even more explicit when we passed the Redundancy Payments Act. It is true of course, as the noble Lord said, that we in Britain have not increased our capacity for many years and, as British Shipbuilders said in their evidence—and I think it is worth repeating; your Lordships will find it at page 3 of the evidence— The present size of the British shipbuilding industry is modest in relation to the needs of a maritime nation strategically dependent on the import of most raw materials and a large volume of foodstuffs". In that connection, I hope the noble Lord, Lord Rhodes, will forgive me if just question what he said about the strategic position. It is quite true, as he said, that warships are excluded from the matter which is under consideration, but we have a strategic need for merchant ships which is not shared by all other countries because they are not all islands like Britain—and islands with a very small native production of what we need for our industries.

Lord RHODES

My Lords, I agree entirely with what the noble Viscount has said. The remit that we had was for merchant ships, having in mind that the strategic element is not included in the Treaty of Rome, but I agree that it is a most important part of the question.

Viscount SIMON

My Lords, I fancy that the noble Lord and I are using the word "strategic" in a slightly different sense, but nevertheless I take his point. As the noble Lord, Lord Campbell of Croy, pointed out, because we have not increased our capacity we are in a good position to argue that it would be quite unreasonable for us to suffer the same cut as everyone else (and particularly some of the big industries that have latterly grown so large) when the time comes to agree internationally to some reduction. I think we shall find it politically very difficult to get our way in this. It is manifestly fair to us, but I am not sure that the other nations will think it is manifestly fair; they may have other points of view that they will put forward. In the end, I have a nasty feeling that, however reasonable this is to us, we shall find it very difficult to achieve, and we may have in the end to choose between accepting an unfair reduction or getting no agreement at all. If it comes to that, it is not going to be an easy decision to make.

I should like to make one point with regard to the 2.4 million compensated gross registered tonnage target. Here did have an advantage over the noble Lord, Lord Campbell of Croy, because I read Viscount Davignon's speech last week in the European Parliament; thought he made it perfectly clear that it had been misunderstood, that it was not put forward as a target but merely as a basis upon which to discuss a broad principle. If the noble Earl, Lord Bessborough, is able to intervene, I am sure he will be able to tell us about that, because he was at the meeting of the Parliament. I should like to turn now to another aspect of the Commission's communication which we have not touched upon very much. When I came to page 9, I was very pleased to read the statement: The first objective of Community policy on shipbuilding must be to make our yards competitive in the world market". I regard that as a splendid positive statement. But here again it is, surely, a very difficult thing; as the Committee's report says, the desirability of this aim is obvious but they do not make any suggestions about it. Presumably, the intention is for the new shipbuilding committee, which it is proposed to set up, to follow this up and put forward detailed suggestions later on. But I must say that I find it very difficult to see how the shipbuilding industries of Europe are going to get themselves really competitive against people like the South Koreans. You have an enormous divergence in hourly rates of pay and in hours of work.

There is some talk about re-equipment and modernisation. We have done a lot of re-equipment and modernisation in our yards, and no doubt some are better than others, but on the whole the British shipbuilding industry is now in very good shape. Further modernisation and re-equipment can be done, I regret to say, only for the purpose of doing more by machines and less by the labour of people, which is again a very sad thing in the present state of our labour market. Perhaps our best hope is that improved industrial relations, which we were promised as one of the pay-offs of nationalisation, will lead eventually (dare we hope it?) to a single union in each yard. That, I believe, would make more difference to the cost of producing our ships in British yards than any other single factor.

I should like to say a few words about stimulating demand, which is again one of the objectives the Commission place before us in their document. I was interested to read in The Times this morning of a scrap and build scheme upon which it appears high hopes are being placed. I hope perhaps the noble Lord, Lord Inverforth, when he comes to speak, will be able to tell us something about that. It would be a splendid thing if we could get a scheme agreed. There have been a number of attempts, I understand, over the past few years, but they have all failed. A good scrap and build scheme—that means scrapping at least two ships for building one—could make a great difference both to the shipping industry and to the shipbuilding industry. The particular thing which is suggested—I do not think it is actually proposed—in the Commission's document is something different. That is the possibility of accelerating the fitting of segregated ballast tanks to existing tankers. We spoke about this in your Lordships' House in January of this year, when discussing the subject of pollution, and I think we agreed with both the shipping industry and the Government that, so far as pollution is concerned, this is not worth while, or rather not worth the money it would cost, because the effect on pollution would not be very great and the cost would be enormous.

However, what the Commission have suggested is something much wider than that. Normally we—certainly we on these Benches—deprecate finding temporary work for ailing industries rather than facing up to the need to contract them. But I think that in this case there are special circumstances which deserve to be considered. If it was possible by some magic wand to produce almost immediately a shipbuilding industry of the right size to deal with our needs in five years time—not only to deal with our needs but even to build the ships that we think we ought to be able to build, for ourselves and to sell abroad—that industry would still face five years of under-employment because of the great surplus of ships existing today. That being so, it seems to me there can be a case for a temporary job, like the fitting of segregated ballast tanks which will occupy the shipyards.

It will, incidentally, take ships off the market; first, the number that go off to be fitted, and then, when they come back, they have something like 15 per cent. less capacity. This might have the added effect of improving the freight market, about which the noble Lord, Lord Rhodes, spoke so feelingly; it is really in an abysmal condition and any little improvement would be a Godsend to shipowners. Might it not be worth while looking at this proposition, which would do all these things at the same time?

I was interested to see in the Commission's paper that in fact there are studies going on to look at the cost-benefit analysis of this kind of job. The cost to the British industry alone, your Lordships may remember, we were told, was about £150 million. That is a terrible sum of money; I do not believe any of your Lordships can really conceive what it is—unless by any chance one of the ex-Governors of the Bank of England is here, which I do not think is so. The only way we can get any conception of a figure like that is to see it in its context; what are the other figures in relation to this operation, what are the earnings of all these ships, what are their other expenses, what is the cost to the oil industry? I suspect that the oil industry, which managed somehow to get over a nearly four-fold increase in the price of oil a few years ago, would manage to get over a small increase in these abysmally low freight rates without really feeling it at all.

So I do hope that the Government will consider following up this idea to which the Commissioners have drawn attention, and which they tell us is being examined at the present time, I am not sure by whom. It is on page 19 of their report. They simply say: The introduction of such measures, the time taken to bring them into force and their scope, should depend on the cost-benefit studies currently being made". I suppose they are being made by the Commission. May I close by asking the noble Lord, Lord Winterbottom—although I do not suppose he can reply to it today—to take that idea into his mind, and perhaps find out and let us know whether the Government will follow up that idea. It may be that, when the studies are done, it will be found to be completely uneconomic. I would say, if the scrap and build scheme I referred to earlier turns out to be a winner, it would probably be a much better way to do it. But I think it is worth considering this other proposition which has been put forward, tentatively, I think, by the Commission.

6 p.m.

Lord TREVELYAN

My Lords, I am most grateful to the noble Lord, Lord Rhodes, for having agreed, at my request, to introduce the report of the Sub-Committee which was afterwards approved by the Select Committee. He has given an account of the problem in his usual very forthright and clear manner. I especially felt moved by the portion of his speech which dealt with the human problems behind this matter. I can do little except perhaps sum up the views of the Commission and the Committee and some of those who gave evidence before us. That may be of some use although I fear that I shall be rather repetitive.

This is an extremely difficult problem which I fear will be with us for a long time and which I think we shall probably discuss on many future occasions. It is not our business in this debate to deal directly with the question how the shipbuilding industry will make itself competitive, although that is the centre of the affair. Our purpose is to form a view on the Commission's proposals and to determine how far the Community can be helpful to the industry in the present deplorable condition of world shipbuilding.

The Commission aims at a co-ordinated approach which will include a 45 per cent. contraction of the industry; a form of adaptation to future demand designed to make the industry competitive without assistance; redeployment of excess labour outside the industry; and the stimulation of demand by the introduction of antipollution, safety and social regulations. We have heard a good deal about those matters from the previous speakers. For these purposes the Commission proposes the co-ordination of aid—a matter which has already been dealt with in the fourth Directive—the use of the Regional and Social Funds, and loans by the investment bank, and a high level committee to monitor development of policy.

I should like to sum up some of the evidence that was given to the Committee. British shipbuilders want the continuation for a period of the intervention fund, but are confident that in the long term they can face competition without aid. They do not accept the indicative figure of production proposed by the Commission, as they consider that there is at least a chance of the situation improving in the early 1980s. They suggest that an industry of about the present size, that is, with a production capacity of about 1.2 million, gross registered tonnage (GRT) a year will be viable. The unions generally support the views of the shipbuilders and seem to come near to advocating a policy of subsidy with protection against non-EEC ships.

British shippers consider that a policy of maintaining a higher output than is justified by market conditions would have a disastrous effect on the shipping industry by exacerbating the problem of shipping capacity. They therefore support the ideas of the Commission. They were very firm and forthright about it. In the light of the evidence submitted by the Ministry of Defence, the Committee accept that a merchant shipbuilding capacity of a moderate size is necessary for strategic reasons, not least in support of the naval programme.

The Government do not accept the Commission's figure for the reduction of capacity, but do not rule out a Community shipbuilding policy. There is general agreement on the Commission's analysis of the present state of the industry in the world as a whole. Your Lordships have heard from the noble Lord, Lord Rhodes, that the Committee believes that the objective of the Commission's communication, to create a competitive European shipbuilding industry which can meet a significant proportion of the Community's requirement for ships, is correct and will be widely accepted. It does not doubt that national policies to meet the crisis, within the frame work of the fourth Directive, will continue and that other measures such as scrap and build programmes, may be adopted by Member States. But it considers that a Community policy, in addition to those national measures, is also desirable.

The aims of the British industry, to survive the slump and to be competitive in the long term, are not incompatible with negotiations through the Community. There may be difficulties in taking such negotiations as far as the Commission's communication suggests, but the Community is an important channel of discussion and should not be neglected. If there is to be an international agreement on shipbuilding capacities, there must first be agreement among the Members of the Community, and there will inevitably be a series of international negotiations through the OECD in which the Community has had a common negotiating position since 1976.

The Committee does not consider that the precise figure of the quantitative indicator proposed by the Commission is sufficiently reliable to be adopted as a firm figure for capacity in the early 1980s, but the Commission's general approach towards reorganisation by reducing capacity in an orderly fashion and increasing competitiveness is correct. It is obviously going to be difficult to apportion capacity among the Member States, but if the Community's industry is forced to contract, that is a problem which must be faced, and agreement between the Member States will strengthen their negotiating position within and outside the OECD.

There is much to be said for the Commission's detailed proposals, although they will not solve the major problems. However, these proposals could be usefully developed further during discussions within the Community. The Committee notes the Government's doubts as to whether a senior advisory committee is necessary. However, it considers that a standing body of that type might have a useful role to play in developing an internal Community policy on shipbuilding as well as a common position for external negotiations. In any case, if a committee is established for this purpose, the United Kingdom should surely be represented on it.

The main question is: What conclusions, if any, one can draw? There have been plenty of suggestions from the Committee, but I do not think that at this stage our conclusion can be any more precise than that we should be active on two fronts—within the Community and in our national efforts to make our industry competitive.

6.8 p.m.

Viscount ROCHDALE

My Lords, first I should like to join with other noble Lords who have spoken and thank the noble Lord, Lord Rhodes, for introducing this debate this afternoon. I should also like to thank personally the noble Lord, Lord Trevelyan, who has just spoken, for inviting me to join his Sub-Committee B and for enabling me to take some small part in the study of the communication which we made and in the preparation of the report.

A few years ago, the question which really stems from this whole discussion of the relative capacity of the shipbuilding industry as regards likely orders was one that affected me personally in the work that I was then doing, but it does not do so now. However, I have kept my eyes open as regards this problem since then and it is obviously one of great interest. Two main questions come to mind as regards this matter. First, how has this enormous imbalance in capacity as regards likely orders come about? We have been told that the figures show an excess capacity of 40 to 50 per cent., which is an enormous imbalance. How has that come about? Secondly, how is it that this has not come to a head? I shall not say that it has not been foreseen, because it obviously has been foreseen, but how has it not come to a head sooner than this?

I should like to deal with the first of those two questions and I must apologise to your Lordships if I tend to repeat some of the figures that other noble Lords have quoted from the report. Undoubtedly the report gives us a number of very important figures and it is generally agreed that those figures come from an excellent source and can be assumed to be correct. However, I, personally, find it difficult to assess their relative importance; I find it very difficult to get an overall picture of the magnitude of the problem. It seems to me that, especially if we accept, as has been mentioned this afternoon, that the industry is a cyclical industry, we want to be very careful not to think that if there were only an upturn in the trade cycle we should return to the satisfactory position of the past. That is undoubtedly not the fact.

Therefore, I should like to look back quite a few years, to the period between the 1950s and 1960s, to remember a few of the underlying changes—which are sometimes forgotton—which have taken place. Some of those changes were of a technological nature; some were of a commercial nature, and no doubt some were of a political nature, although I use the word "politics" in its widest sense and am not talking about British politics.

The first point that comes to my mind and which has given rise to a tremendous gap in the British shipbuilding industry and in other countries' shipbuilding industries has, of course, been the virtual elimination of the passenger liner, which has been replaced by the aircraft. One can virtually say that, apart from a few cruise ships and one or two others, there has for some time now been no new building of passenger liners. Then there has been the tremendous increase in the size of the bulk carriers: the ore carriers, the grain carriers, the coal and phosphate carriers, and so on. That has had its effect. The effect of Suez was to stimulate tremendously the fantastic growth in the so-called VLCCs, the very large crude carriers.

The other quite remarkable development has been the so-called container revolution, the rapid development of which, has, I think, exceeded even the most sanguine hopes of its original protagonists. This has come about due to the size and speed of the ships, but more important than anything else has been the tremendous ability to turn the ships round in port in a very short time; one of those great ships can be turned round in a matter of two or three days, whereas in days done by it took many weeks, even running into months. The effect of this is—and this has been quoted to me from very good authoritative sources—that one of these big container ships can be said to displace 10 of the traditional tramp ships of a few years ago.

The one point that has been much raised this afternoon is the fiasco of the tanker situation. I remember very well that towards the end of the 1960s there were some shipyards which were really scratching round for business. Yet, as the noble Lord, Lord Rhodes, mentioned and as is mentioned in paragraph 8 of the report, by 1973 shipowners were jostling for places in the queue so that they could be sure of their orders being placed on the apparent assumption that the increase in the need to convey crude oil round the world would go on for ever. In fact, 75 per cent. of orders then placed were for tankers.

What was the result? The result was that new shipyards were started and old ones were expanded. Countries that did not have a shipyard were encouraged to build one; they probably already had the wish to do so, but this stimulated them. Today we have heard of South Korea, but Spain, Brazil, Mexico and so on were among them. Japan itself expanded enormously. Then what happened? The great OPEC decision was made and in 1975 the bubble burst, with catastrophic effects on the shipbuilding industry.

I have mentioned all these different facts because it is not only the tanker situation that has created the trouble. If and when, in time to come, those over-capacities, over-provision and so on are resolved, there will still be the cumulative effect of these other factors which I mentioned a moment ago. Figures for the tanker effect have been quoted and I do not want to repeat them too much; 32 per cent. of the present tanker fleet is surplus. However, I should like to mention one further figure which has not been given this afternoon and which I think is significant of the position as it was. I must apologise to your Lordships because I mentioned this figure two years ago during the Second Reading debate on the Aircraft and Shipbuilding Industry Bill. However, I think that it very significant indeed that even at that time, in September 1976, no less than 250 orders for tankers, or 55 million gross registered tons, had been cancelled. That is an astonishing figure when one compares it with the situation as it exists today.

One has only to think what all that means in relation to the position in the shipyards to appreciate what a desperate situation we are in. How timely it is that something is being said about it now, that it is being discussed both in Europe and in your Lordships' House; but how inscrutable the problem is. Of course, one's natural feeling is to say "Oh well, the cycle will turn; there will be an upsurge in trade; more ships will be brought back into service; more profits will be made so that new ships can be built to replace old ones and so the order books will be filled".

But, of course, that would be a complete over-simplification of a very complex matter, because there are these underlying structural effects in the shipbuilding industry, which I mentioned earlier. I do not think that this has been mentioned today, but increasing inroads are being made by the Soviet activities in the maritime world, which are enormous. Therefore, even with the 4 per cent. economic growth, which is mentioned in the report and which has been mentioned today as probably being far too optimistic, we cone down to a possible production needed of no more than 12 million compensated gross registered tons compared with a figure of 19.5 million in 1975.

We come to this very difficult problem which every noble Lord has mentioned this afternoon: how are we going to divide that up? The question is: how are we to deal with countries outside the OECD when they are bent on retaining all the expansion they already have and probably increasing it? Let me quote one remark that was mentioned to me only two days ago when I was discussing the question of prices quoted for ships from the great shipyard, the Hyundai shipyard, in South Korea. I was told—and I received this second-hand—that somebody there had said, "We don't y bother any more to cost our ships when we tender. All we do is to find out the market price, then remove a satisfactory percentage from that so as to be certain of getting the order." If that is the situation, and I do not think that it is exaggerated, what hope is there of coming to an agreement limiting the different countries round the world? I find it difficult to see how much further arrangement we can even hope to get from Japan.

Of course, it is clear that the Commission recognise this only too well, But, as I read their communiction, they recognise that the squeeze must be more than ever on Community shipyards, and so—and I need not go into the details because everyone has said this —they come down to a figure of 2.4 million compensated gross registered tons which, to my mind, can only be regarded almost as a residue figure, which is a most unsatisfactory way of arriving at any figure at all. It relates to a 46 per cent. reduction between 1975 and 1980, which is quite disproportionate and unfair to the Community compared with the rest of the world.

One noble Lord has already mentioned that the British shipbuilding industry between, say, 1950 and 1975 has cut its employment by 45 per cent. while retaining the output of roughly 1.2 million tonnes. I cannot help commenting on that, bearing in mind the lengthy debate on productivity that we held in your Lordships' House only a week ago today. To some extent, of course, that drop, to be fair, must be due to the fact that the ships built more recently are far less sophisticated and need far fewer outfitting trades than the ships in the 1950s, which were much more sophisticated; more passenger liners, and so on, were needed. But, at the same time, some of that is undoubtedly due to the fact that there has been considerable technological investment in the industry and that productivity has increased. That is something that we do not want to forget, because it is a very good point.

Where does one go from here? I would entirely agree with other noble Lords who say that one of the most important things is that the Community and, if possible, the OECD, should speak with one voice: we should do our utmost to try to find, if we possibly can, some form of common maritime policy. But, if we are to succeed, one ingredient is absolutely essential, and that must be that we make our own shipbuilding as competitive as possible so that that one voice carries the weight in world discussions. I find it difficult to see that the question of responsibility can really lie with the Community. It must surely be more a national matter, and indeed an individual company matter.

This leads me to say a word—this may appear rather unnecessary—about what is the object of shipbuilding. The object of shipbuilding is to service the shipping industry. It is therefore terribly important that, in trying to preserve the shipbuilding industry, we do not do so, as other noble Lords have said, at the expense of the shipping industry by agreeing to what could all too easily be an unhealthy degree of subsidies, creating the cut-throat competition which has already been referred to and which, in turn, will end up reducing the number of orders that the shipping industry can give to the shipbuilders.

There was a little interchange a short time ago as to the percentage that the British yards were providing for British shipowners. I agree with noble Lords who said that it was 30 per cent., although it represented 70 per cent. to 80 per cent. of the production of British Shipbuilders. I think we are all clear about that now. But that is on the basis of 1.2 million tons production per year. In the light of the 30 per cent., and the 70 per cent. to 80 per cent., it is difficult to see how one could justify to oneself any permanent reduction of that figure. I say "permanent reduction" of that figure. On the other hand, if that is our argument, how do we justify that argument to the Community and the outside world? Again, it comes back to competitiveness, bearing in mind that, generally speaking, as the noble Viscount, Lord Simon, said, in many of our yards we have really first-class, up-to-date equipment. We have to make the best use of that that we possibly can.

That brings us to the personal matter: the inevitability of redundancies. The Government have recognised this. Reference has been made to the Shipyard Redundancy Bill, which we debated not so long ago. I think my noble friend has put a question to the Government on how this is getting on. It is difficult to know how to handle this, but, on the other hand, the sooner it can be handled the better it will be for the shipyards, if for no other reason than that uncertainty as to the future creates bad morale. Morale in some shipyards is undoubtedly not at all good. One knows of not very good timekeeping, and of people coming out of the yards before their time, five o'clock, or whatever it is. That shows bad morale. It is understandable, but bad morale breeds poor competitiveness.

To sum up, I agree in broad terms with the views of the Committee. I certainly agree that we must try to have one European voice; that we must aim for a Community maritime policy. I would agree with the need for some form of Standing Committee. I realise that it is a fairly controversial matter as to how it should he formed and of whom it should consist, but it is important that there should be some form of Standing Committee to monitor what is going on and to feed those who have to carry out the world discussions.

I agree about the desirability and the importance, of making use of any transitional help—the Social Fund, the Regional Fund—that one can. But, having agreed so far (and this is absolutely no criticism of my colleagues on the Committee), I must say that we have not in fact got very far. That brings me to the answer, which I have not given, to the question I asked at the outset—namely, how is it that we have got nowhere? I think the answer is that it is the nature of the beast; it is such a difficult problem that it is hard to see how we could have got further. I would only say the report will have done a good job if it helps to clarify the position, if it helps to drive home what a serious position the industry is in and if it makes us recognise that there is no quick answer; We must move step by step and hope that, with everybody trying to do their best, a solution will ultimately result.

6.31 p.m.

Lord INVERFORTH

My Lords, as a shipowner I have listened to the debate with interest, but I fear that my own morale is not very high at the moment. It is a very tricky subject, but I am grateful to the noble Lord, Lord Rhodes, for giving us an opportunity to air the many difficulties which are worrying us. I am not only a British shipowner but a customer of our own shipyards. Indeed, on completion of our current building programme, my company will have built since the war 84 ships, all in the United Kingdom, at a cost of some £200 million. We can say that represents a 100 per cent. British order in every way. This debate is therefore of particular interest to me, as we may wish to order further ships in the future, once the climate changes and world trade picks up.

The world's shipyards are producing ships far faster than they are receiving new orders, and in the last five years the total world order book has continually declined, so that today many countries have only a few months' work left. Japan, Sweden and Norway have responded to that situation by announcing specific plans to reduce capacity. Indeed, all OECD countries, including the United Kingdom, agreed two years ago that reductions were necessary and Her Majesty's Ministers have made no secret of that fact. I understand that many shipyard workers have already been switched from merchant to naval shipbuilding, and the Shipbuilding (Redundancy Payments) Act, which your Lordships approved two months ago, will assist a further reduction.

British shipbuilding has in fact thus cut down its merchant shipbuilding capacity, and will cut it down further, but because no figures are given to the public we are not given credit in Europe for what we are doing to implement the policy agreed with our colleagues in the EEC and OECD. Indeed, only a fortnight ago, when the EEC Council of Ministers discussed the Commission communication which we are now considering, the United Kingdom, apparently alone, opposed a common EEC position on shipbuilding and has shown little enthusiasm even for forecasts. Accordingly, the impression is given that the Government will do anything to secure new orders, even giving ships away. Such a policy must harm British shipping and delude United Kingdom shipbuilders. Accordingly, on behalf of the customers of United Kingdom shipyards, I ask the British Government to take this opportunity to emphasise that the British, like their colleagues abroad, are determined to discourage the artificial creation of new orders.

Last week the European Parliament was discussing the communication which is before the House today and many sensible things were said; but an old hobbyhorse raised its head again, namely, the idea that EEC shipowners should he required to build most or all of their ships in EEC yards. Those who advocate this protectionist line make a comparison with the EEC agricultural policy on imports, but the comparison is false. The consumers of the Community's agricultural products live in the Community and are captive customers. The consumers of the Community's shipping services are Malayan rubber growers, Japanese manufacturers and Australian iron-ore producers. They are not captive customers, and if we want to carry their cargoes we, as shipowners, must be competitive, and we can be that only if our ships have been built at competitive prices. I know that from personal experience; as I said, my company has always built in the EEC, indeed in the United Kingdom, but we are mainly cross-traders. We have no protected home market and we earn our living and the country's by carrying cargoes across the Pacific and Indian Oceans, for example. For 1977, my company's own fleet earned over £28 million towards the balance of payments. The Intervention Fund and the stimulus of foreign competition have enabled EEC shipyards to give us competitive prices, but once they had a monopoly those conditions would no longer apply. I hope therefore that we shall hear no more of that particular idea.

My noble friend Lord Simon asked about a report in The Times today concerning a scrap-and-build scheme being proposed by the International Maritime Industries Forum. That is not a body to which I belong and I am afraid I cannot answer his question because I have not looked fully at The Times article. Anybody looking for a solution deserves encouragement, but your Lordships should not underestimate the practical problems in devising a scheme which will produce new orders without increasing over-tonnaging or costing more than Governments are prepared to pay. If this new solution helps shipbuilders and shipowners, both will be delighted. Looking at many scrap-and-build schemes, it is hard to find one that is fair to everybody. When my company's current building programme is completed the average age of the fleet will be eight years; it seems rather a shame to start scrapping ships of that age. On the other hand, companies with very old ships may be delighted.

The report of the Select Committee is most valuable and we must be grateful to the noble Lords who produced it. I only urge that we encourage others to read it and be guided by it. The Commission has also done a splendid job in educating us all to the realities, and that in itself is a valuable achievement. There is no easy solution, but I remain hopeful that gradually the EEC and its OECD partners will adjust to the new world, and I hope that when the time comes there will be a viable British shipbuilding industry to build ships for my company, and the more the better.

Baroness WARD of NORTH TYNESIDE

My Lords, may I ask the noble Lord, being a shipowner, to make an additional statement! He said his firm had always ordered ships in United Kingdom yards. Would he add that British shipowners have over the years ordered about 70 per cent. of their tonnage in United Kingdom shipyards and a higher figure in EEC yards as a whole? It is vital in this debate that that point is emphasised. Having listened with great interest to his helpful speech, I should be grateful if he would confirm what the British shipping people have told me in a note.

Lord INVERFORTH

I believe that is absolutely true, my Lords. We have ourselves always built here, not just out of sentiment but because we have always had an extremely good bargain from British shipyards; Harland and Wolff, Swan Hunters, as it was in the old days, and Doxford, now Sunderland Shipbuilders. I believe that much has had to do with the type of tonnage; we are using a quite sophisticated cargo liner which has always been built extremely well here. Perhaps if we had been building the big bulkers or tankers we might have gone to Japan and got a better bargain there. Certainly the tonnage influences the situation; and of course delivery dates are important. We have been lucky and have not had many vessels delivered late, though I know other shipowners have had a ghastly experience in that respect. We, as an industry, have supported the United Kingdom and the EEC countries because they build fine ships. We have had many container ships from them and they have concentrated on that field. I should have thought therefore that as owners we have a good record for supporting both at home and on the Continent, in the EEC.

Lord CAMPBELL of CROY

My Lords, before the noble Lord sits down, and in no way detracting from what he said, I should perhaps record that the way in which my noble friend Lady Ward of North Tyneside read out that piece was to make the same inadvertent mistake that I made in my speech where I emphasised the 70 per cent. to 80 per cent. it is 70 per cent. to 80 per cent. of the United Kingdom shipbuilding production which the British shipowners have used, but it has been 30 per cent. of their ship orders. As I was the first to make that mistake and my noble friend Lord Rochdale and the noble Lord, Lord Bruce of Donington, redressed it, I should like for the record again to put it right.

Viscount SIMON

My Lords, as this matter has been raised, I wonder whether could put a point because I still find the figures almost impossible to understand. The lower figure of 70 per cent. of the output of the British yards, which is 1.2 million a year, comes to 0.84 million a year. We are told that that is 30 per cent. of the British requirement. That makes the British tonnage requirement 2.8 million a year, and yet at another point we are told that 1.2 million is sufficient to look after the British tonnage requirement. Is this because in future British tonnage is going to be less?

6.42 p.m.

The Earl of BESSBOROUGH

My Lords, I had not intended to speak in this debate but as my noble friend Lord Campbell of Croy referred to me and to the fact that I was the draftsman of the Opinion of the Budget Committee of the European Parliament, and in the presence too of the noble Lord, Lord Bruce of Donington, who is one of the great experts on the Community budget, I thought perhaps I should just speak very briefly. I do not intend to repeat what I said at some length during a three and a half hour debate in the European Parliament last week about the budgetary aspects, but there are just a few points which I should raise.

Before raising them very briefly I should like, with others, to congratulate the noble Lord, Lord Rhodes, and the noble Lord, Lord Trevelyan, on having produced this report and I should immediately, in parenthesis, take this opportunity of saying that the reports of your Lordships' Select Committee are the best reports produced by any House of Parliament in the whole of the Community, and the demand for them is quite astonishing. All my colleagues in the European Parliament come to me when a report has come out; it is hardly off the press before they say, "Have you got the Lords Select Committee report"—on shipbuilding or aerospace, or whatever it may be—and our Select Committee is to be congratulated in that way on doing a remarkable job.

As I say, I am not going to repeat all the arguments which I put forward in the European Parliament about the specific Commission proposals. I very much agree with the opening report of Mr. John Prescott for the Economic and Monetary Affairs Committee. It was a very thorough piece of work. I may say also that I did a thorough piece of work in so far as I wrote to, I think no fewer than 40 different shipbuilding firms or groups of firms in the Community, and as a result we have this 100-page report—which, I regret to say, probably most noble Lords have not actually read although I think it is worth reading—with its annexes of the replies from all the different firms. Both Mr. Prescott and I worked very hard on this subject and both committees met three or four times to discuss it.

One of the main points I want to make is that nowhere is it stated in the Commission proposals what the actual charge would be on the Community annual budget as such. Certain existing financing instruments, which the noble Lord, Lord Bruce of Donington, knows well, will be called upon, such as the Regional Fund and the Social Fund, as well as Article 375 which was created during the last budgetary procedure and which is designed to provide some economic aid to industries in distress. However, the amounts available in these different budgetary items are limited—usually as a result of a fairly restrictive attitude by the Council of Ministers—and it is difficult to see how they could be expanded significantly to cope with the extra task which arises specifically from these Commission proposals.

Another element—and I am just glossing the various points which I made in Luxembourg—which particularly concerned me was that the Commission had not troubled to take into account the differing situations within our Member States. The crisis in shipbuilding, as all noble Lords who have spoken in this debate know better than I do, is not an entirely new phenomenon. In the United Kingdom we have just passed, as various noble Lords have said, a Shipbuilding (Redundancy Payments) Act which affects very closely the relevance of the Commission's proposals and which does not seem to have been taken into account by the Commission. Moreover, the Government set up, as we have also heard, a Shipbuilding Intervention Fund. Do we also need a Community Intervention Fund? Again, that fund was mentioned by the Commission in its communication. I fear therefore, as I said in Luxembourg, that the Commission's policy document is largely overtaken by events.

The problems facing the industry are clearly of a social and regional character as well as of an economic one. The question is really that which the noble Viscount, Lord Rochdale, raised just now. I put it like this: should the Community assume responsibility for this crisis? I ask the question not only because the noble Viscount, Lord Rochdale, raised it, but also because many members of my own Budget Committee raised it and expressed their concern, as they have before, that the Commission is too willing to take on vast responsibilities in different sectors undergoing major crises. if the Community's responsibility was accepted, and I am not covering only the shipbuilding industry, it would involve massive financial commitment far beyond the limits of the Community's own resources as at present defined.

Finally, my Lords, I would say that there is some merit in the Commission considering this matter, and it has been, I hope, persuaded to revise its proposals, to persevere in elaborating new proposals which can come back to the committees of the European Parliament—and I trust to the Select Committee in your Lordships' House—and also be discussed again in both Parliaments in plenary. I hope that by that time we shall have had some rather harder information. Viscount Davignon, although he made a very interesting reply last Wednesday, certainly did not give us all the hard information which the Budget Committee, in particular, wanted.

6.49 p.m.

Lord BRUCE of DONINGTON

My Lords, it gives me particular pleasure to have the opportunity of following the noble Earl, Lord Bessborough, in the contribution he has just made. I had the privilege of working next door to him in the Budget Committee of the European Parliament and I was able to hear the very effective speech he delivered on this subject in the European Parliament last week.

Before proceeding to the subject matter of this debate, with which I can assure your Lordships I shall deal with the utmost brevity, I should like to pay a tribute to my noble friend Lord Rhodes for the way in which he introduced the report of the Select Committee this afternoon. I also wish to endorse the remarks of the noble Earl, Lord Bessborough, about the quality of the reports which come from the Select Committees of this House. I entirely agree with everything he has said about this. It is common knowledge in the European Parliament that the reports of the Select Committee of the House of Lords are of the highest quality, comparable with—indeed, much better than—those from many other Member States. I shall not on this occasion mention another place.

I have a particular interest in the subject. Apart from being a member of the Budget Committee of the European Parliament, I also have the honour of being the chairman of the Regional Planning and Transport Committee of the European Parliament. It so happens that the very regions which are the underprivileged regions in the Community, and whose interests are my Committee's special study, also contain, by coincidence, most of the shipyards that are likely to be affected by any mass redundancies, or by any small-scale redundancies, for that matter.

I should like to pass to the section of the Commission's proposals which suggests that measures should be taken to stimulate demand, for instance, by establishing more stringent environmental and safety factors. It may be that there are too many ships afloat at this time. I should also like to tell your Lordships that there are too many substandard ships afloat at this time, and they are not only a menace to the crews who sail many of them, but are also a menace in terms of accidents at sea and consequent pollution.

A fortnight ago, I had the opportunity of conducting a public inquiry in Paris into the prevention of accidents at sea and the avoidance of consequential pollution, in the course of which I and my committee had the opportunity of listening to experts from shipbuilders, shipowners and oil companies, as well as to masters and crews, and to representatives from insurance and salvage interests, and from maritime regions of the Community, as well as from the Commission itself. Some quite alarming evidence began to emerge. It appears that as much as 10 per cent. of the tonnage afloat is substandard, anyway, and that, if steps were taken to ensure that the standards set by international conventions were kept, about 10 per cent. would have to be scrapped, and a very significant number would have to be replaced in order to deal with the current trend.

Why is this not done? Why are there so many substandard ships sailing the seas at present? There is a very simple reason: from time to time international conventions are held for the purpose of establishing standards of ship design and construction, facilities for repair and inspections, and the training of ships' crews, as well as a whole series of other matters. Many States throughout the world have signed these conventions, and everybody assumes that everything will be all right. But that is not so, because until the conventions are ratified by States—and some of them require 100 per cent. ratification —they do not come into force. So at present we have a number of very admirable conventions drawn up by IMCO (the Inter-Governmental Maritime Consultative Organisation, an agency of UNO) which have laid down standards to which large numbers of countries have assented, and which, if they were applied, and applied strictly, would result in an immediate increase in the demand for shipping. This is what the Commission mean when they say that measures should be taken to stimulate demand, for instance, by establishing more stringent environmental and safety standards.

Some of the evidence we heard in Paris was blood-curdling: for instance, there are a number of ships afloat in the hope that they may sink, so that the insurance money on them may be collected. I can produce the evidence to the noble Lords, if required. Remarkably enough, in this field the United Kingdom is one of the States in Europe that has ratified the most conventions. We in the United Kingdom are very often accused of lagging behind the rest of Europe in many respects in terms of being good Community Members. I must tell your Lordships that the United Kingdom is top of the league in ratifying the conventions and that there are many other States belonging to the Community which, in varying stages come well below, down to the Republic of Ireland which has so far ratified only one. Until these conventions are ratified, they cannot be enforced, and if they cannot be enforced, substandard ships will continue to float across the oceans, and in many cases will be a menace to other shipping and certainly a menace to the coasts close to which they sail.

The Commission's proposals in Document 161/78 to the Council, following the "Amoco Cadiz" disaster, drafted a Directive for issue by the Council, requiring the Member States of the Community to ratify forthwith all the conventions which they had not yet signed. This does not apply to the United Kingdom; the United Kingdom has ratified them all. I noted with regret that, for some reason or another, these proposals were vetoed at the last Council of Ministers by one or two Member States —not the United Kingdom—as a result of which the proposals have been watered down, and all the Council did at its last meeting was to take note of the Commission's requirements and to recommend them to other Members.

This lies at the heart of the problem. Not for one moment am I pretending that the increase in demand which would result from the strict enforcement of standards would eliminate the problem with which we are confronted; but I am saying that, when we are talking about redundancies in shipyards and reductions in capacity, we should remember that human individuals are involved in this industry and that they have spent their lives contributing their skills to it. Therefore, if we can do anything to contribute to a minimisation of the redundancy and the cut-backs that the Commission thinks are necessary, surely we should do so. I invite Her Majesty's Government to use all possible pressure at Council of Minister level to see that the other recalcitrant Member States of the Community put their money where their mouths originally were when they signed the conventions and in fact ratify them without any further delay.

I pass to a further point which arises from the question which I addressed to the noble Lord, Lord Campbell of Croy, (which he was kind enough to correct), and in which I pointed out, as the Select Committee did, that only 30 per cent. of the requirements of British shipowners came from British yards. I am very happy to congratulate the noble Lord, Lord Inverforth, upon the 100 per cent. record of his company. I do not know what further words of felicitation I can offer him in the face of such a record, but quite clearly this does not apply all the way through the shipbuilding industry in the United Kingdom. There are very good reasons why. The noble Lord, Lord Campbell of Croy, referred in the course of his speech to competition from Japan; he also referred to South Korea and Brazil. Three or four weeks ago the Economist pointed out, with great succinctness that wage levels in South Korea are one eighth of those in the United Kingdom, and the wages in Brazil, similarly. When this is translated into European terms as distinct from British terms—because British wage levels are lower than those in the remainder of the EEC—one can see immediately what a competitive advantage countries like South Korea and Brazil have.

My Lords, we have to address ourselves to this question: How is it that competition can be offered from that quarter, where there are these low wage levels? The answer, my Lords—and the sooner we in the United Kingdom face it, the better —is that at a time when United Kingdom industry needs further investment from the capital resources of those that own the capital here, it is United Kingdom capital that is very largely responsible for the financing of South Korean shipyards and also shipyards in Brazil. I am not suggesting that Her Majesty's Government can do anything about this, but it is a fact that should be known in case, sometimes, shipowners are tempted or are prone—I do not mean the noble Lord, Lord Inverforth—to shed crocodile tears about what is happening within the British shipbuilding industry; because this is in fact what happens. In the way we organise our economy and our finance in Britain, financed capital itself is partly responsible for the competition from South Korea and Brazil which is endangering the continuance, not only of British shipyards but also of shipyards in Brest and other ports in other countries in Europe.

I repeat: there is nothing that Her Majesty's Government can do about this under existing legislation, but it might be a matter that Her Majesty's Government may see fit to consider when adopting certain taxation policies, certain intervention policies and certain subsidy policies in aid of British industry; and it might be reasonable and wise for the Community as a whole, if there are going to be aids to shipowners in the Community and in the United Kingdom, to stipulate that they should place their shipping orders in the Community and, to some extent, also in the United Kingdom. This does not seem to me to be an unreasonable stipulation.

My Lords, that is all I have to say on that subject. I return briefly to my original theme, which I hope will be taken to heart by Her Majesty's Government. I hope that, within the Community, in which the noble Earl, Lord Bessborough, and myself have some joint interest, Her Majesty's Government, in the Council of Ministers, will take the greatest possible energetic steps, first of all to ensure that the remainder of our Community colleagues follow Britain's example and ratify these international conventions, and then to use their best endeavours within the Community to ensure that when the Community have acted as one in this matter they should then, as a Community, with all the political and economic power possessed by that Community, bring pressure to bear upon the remainder of the recalcitrant nations, so that the conventions initiated and organised by IMCO can be brought into effect, the demand stimulated and accidents at sea and consequent pollution avoided.

7.4 p.m.

Lord WINTERBOTTOM

My Lords, my first duty is to congratulate the Select Committee on its excellent report, and, in particular, to thank my noble friend Lord Rhodes for introducing it. He said that the Committee had done its work painstakingly. Her Majesty's Government agree with that view, and find that there is really very little in the report with which the Government would wish to disagree. But perhaps before I deal with the report itself I could say a few words of a general kind about the Government's view of the need for a Community policy, and later in my speech I shall endeavour to answer certain questions put to me by noble Lords, provided they will not begrudge me the time for doing so.

The Government naturally support the principle of a Community policy for shipbuilding. We have always made this plain, and we welcome the opportunity presented by the Committee's report, both to learn the views of the House and to explain to the House our own views on this important but often difficult and controversial subject. I have said that we support the idea of a Community shipbuilding policy. It is worth pointing out that the communication from the Commission which is before us today is not the first such document. About two years ago the Commission produced another communication on shipbuilding which suggested the need for policies which would ensure that the Community did not have to bear more than its fair share of the burden which would result from the huge drop in world output. We, as a nation, waited in vain for such a policy; and in the end we had to lead the way by introducing our own domestic policy, the Shipbuilding Intervention Fund, without which the United Kingdom shipbuilding industry would have collapsed virtually overnight. That fund has helped in some measure to reduce the gross imbalance in the distribution of new orders between ourselves and Japan, on the one hand, and ourselves and certain non-OECD competitors, on the other.

Most other Community Member States have followed suit in one way or another and to a greater or lesser degree; and in due course the Commission itself recognised the need for a co-ordinated policy of this kind and introduced the Fourth Directive on aids to shipbuilding, which blessed the United Kingdom, Dutch and French schemes retrospectively, so to speak. But this was not a Community shipbuilding policy in the real sense. It was simply a recognition by the Commission's Competition Directorate that, in the absence of any common Community policy to ensure that we received a reasonable level of orders, Member States would have to plough their own furrows; and, that being so, it was essential, not only to give the necessary general dispensation from the Treaty for the introduction of production aids, but also to have some co-ordinating mechanism and some ground rules so as to ensure that these aid schemes genuinely brought new orders to the Community and not simply redistributed the few orders we already had inside the Community.

So we still had to await Commission proposals for a genuine common policy; and I have to say that when they came, in the form of the document which is the subject of your Lordships' Select Committee's report, they came as something of a disappointment. This was not so much because we disagreed with everything that the Commission suggested—far from it, as your Lordships will see—but because in our view the emphasis was put wholly on the wrong aspect. Noble Lords will remember the publicity which attended the publication of the Commission's communication. It concentrated almost exclusively on the need for drastic reductions in the size of the industry. The Commission even gave the precise level to which that reduction should go: 2.4 million compensated gross registered tons —not 2.5 million or 2 million or 3 million, but 2.4 million. I think the Commission now accepts that this was not a reasonable suggestion to make. The reasons are fairly obvious. The forecast on which it is based is two years out of date; it is also based on the lowest point of the demand cycle in a notoriously cyclical industry; it is a defeatist kind of policy; and it takes no account of social, industrial and political realities. But if we set this point aside and examine the document afresh, we find that there is not much between us. What kind of a Community policy would this Government like to see? I think we have to look only at our own policies for the answer to that question, for the fact is, my Lords, that we have anticipated just about every proposal the Commission has made.

Let us begin with restructuring. No one disputes that the British shipbuilding industry was not well placed to compete effectively against modern competition from the Far East and West. The industry needed reorganising and reinvigorating; and public ownership, we believe, is the means by which that can best be achieved. Our objective, and that of British Shipbuilders, is to make our industry efficient and enthusiastic enough to compete with anyone on level terms. Much work has already been accomplished to that end, as noble Lords have already pointed out, and much more is being and will be done. This is the first step towards the fundamental objective of a Community shipbuilding policy.

Restructuring takes time, however; and in the meantime competition for orders remains fierce, and it is our firm belief that no shipbuilder is today selling ships at an economic price. Our second step had to be to ensure the survival of our industry under those conditions, while the process of reorganisation and restructuring went on. That is why the Government introduced the Intervention Fund for shipbuilding, to slow down as best we could the dramatic drop in our flow of orders, which was out of all proportion to the average drop in world demand. The success of that policy last year is clear.

Our third step was to introduce the Shipbuilding (Redundancy Payments) Act. Let me say at once that the Government have never denied that there will have to be some contraction of the shipbuilding industry in this country. We cannot avoid it. World demand this year may well be as low as 7 million compensated gross registered tons; that is probably about a third of real world capacity. For nearly four years, orders have been running at about two-thirds of world capacity. No one, not even the Japanese, can escape the consequences of a slump of that magnitude. But here is where our approach differs from that of the Commission. Our policy is to keep that contraction to the minimum compatible with the order situation; not to set arbitrary targets which become self-fulfilling prophecies.

A noble Lord

Hear, hear!

Lord WINTERBOTTOM

My Lords, I am grateful to my noble friend. I think that this is absolutely fundamental. We are not taking a negative and self-defeatist attitude towards the problem. Shipbuilding, in our view, is not an industry which lends itself to such treatment; any policy needs to be a flexible one, and fully responsive to changes in the situation. It has to be a humane one, and it has to be industrially realistic. Of course, if there are not enough orders to go round, people will be without work, and it is right that the orders we win should go to the most competitive yards. But it would be neither sensible, practical nor humane to say that we shall shut down so much capacity here this year, so much there next year and so on; and if this is not practicable in a national context, how much less practicable is it in a Community context?

My Lords, the Commission also suggests that shipyards should diversify into other activities, and that new industries should be created to absorb surplus shipbuilding labour in the shipbuilding areas. Already, British Shipbuilders has reduced its employment in merchant shipbuilding, the sector affected by the crisis, by some 22 per cent, as compared with 1974. This has mostly been the result of an extension of the Government's warship building programme, but British Shipbuilders are also exploring other possibilities.

The noble Lord, Lord Campbell of Croy, raised the question of building warships as a speculative venture. At the moment, no speculative warships are planned or being built; but British Shipbuilders are, naturally, looking hard for new warship orders and, if they think that advance building would assist sales, they would, no doubt, want to consult the Government. Obviously, at this stage, I cannot say what the Government's attitude would be; but this is not a proposal that is ruled out. The Government have also introduced a programme of advanced factory building in shipbuilding areas. And provision for retraining workers for other employment already exists, as noble Lords have shown they are aware.

Noble Lords may ask, when we have already anticipated so much of what the Commission is seeking to achieve, what need do we have for a common Community policy? The Select Committee, we believe, has itself answered that question in paragraphs 38 and 39 of its report; and the Government agree that it is important that the Community should act as one in its efforts to meet the consequences of the shipbuilding crisis. Perhaps the Community's policy need not be so formal as the Commission suggests, but it is important that we should have common aims, and that our individual efforts to achieve those aims should be properly co-ordinated, and, equally importantly, that each Member State's national policies should be properly understood and appreciated by fellow Community Members.

There is, therefore, much value, in terms of co-operation, understanding and cross-fertilisation of ideas, in the Community getting together and jointly formulating objectives for shipbuilding, and deciding on the means by which they are to be achieved. Those means may differ from one Member State to another, for a variety of very good reasons; and the overall objectives will themselves have to take account of the differing social, political, economic and industrial factors in individual Member States, all of which will also have to be explained and understood by everyone; and in our case, as the Committee has noted, there are important strategic factors to be taken into account in determining any shipbuilding policy. That, again, was a point made by the noble Lord, Lord Campbell of Croy.

Might I now turn to the report itself? First, may I say that in addition to views expressed by noble Lords, it is probably the best public work of reference on the Commission's proposals that exists, and it ought to be compulsory reading for anyone who wants some background not only on Community shipbuilding policy, but also on the current shipbuilding slump. And there is not a great deal that I need comment on or add to. I should like to refer, first, to paragraph 18, however. It is here suggested that the Commission's figure of 2.4 million cgrt for demand that could be met by the Community in 1980 may be an overestimate. I do not especially want to disagree with that statement, but I think it needs to be qualified and explained a little. Here, perhaps I may have to call on the help of my more experienced colleagues in the world of the European Budget.

First, in borrowing this figure from a paper produced by the Association of Western European Shipbuilders, the Commission appear to have misrepresented its origin. They say in their Communication, in paragraph 2 of Part A in Section 1, The Association of Western European Shipbuilders' experts forecast that Community yards will deliver 2.4 million cgrt in 1980, compared with 4.4 million in 1975". However, it is my understanding that this is not what the AWES experts said at all. I believe that they said that if world demand in 1980 was 11.8 million tons, and if the non-OECD countries captured 4 million tons of that total, then the rest ought to be divided equally: 3.9 million tons to Japan and 3.9 million to the other OECD members. The Community's proportionate share of that 3.9 million would have been 2.4 million tons. But, in fact, the AWES experts then went on to argue that if the Japanese industry insisted—as it did two years ago—on keeping 50 per cent. of the total world market, then the other OECD members' orders would drop to 1.5 million tons rather than 3.9 million tons. This is a complex argument which will probably read better than it is spoken. I think that criticism of that 2.4 million figure is valid and should be studied.

So you will see, my Lords, that in that sense, certainly, the 2.4 million cgrt figure might be described as over-optimistic in the terms used by the Commission. I have mentioned the origins of this figure because I think it necessary to be aware of its fallibility, and to understand that many factors will affect what we and other Community States will be producing in 1980 onwards.

Perhaps it might also be relevant for me to mention here that there have just been published, in a newspaper in Japan, some proposals for restructuring the Japanese shipbuilding industry. They purport to be the draft proposals being considered by the Japanese Shipping and Shipbuilding Rationalisation Council before submission to their Minister of Transport later this month. Although there has been no official confirmation, there has been no denial either, and there seems little reason to doubt that these proposals are essentially what the Japanese have in mind.

They appear to involve an overall reduction in capacity of about 35 per cent. by the middle of next year; but what is significant, perhaps, is that they are said to be based on an expected level of a demand for new orders from Japan of 6.5 million cgrt in 1985, which is 65 per cent. higher than the AWES suggested figure for Japanese output in 1980. So you will see, my Lords, that there are far too many qualifications attendant upon any figure to make any kind of forecasting a worthwhile exercise. Everything depends initially on the direction taken by the world economy, which is itself influenced by a wide variety of unpredictable factors. Much depends on the view of the future taken collectively by the world's shipowners; at present, they appear to be in a relatively gloomy mood. Much depends on the extent to which our competitors continue their uneconomic activities. Much depends on what success British Shipbuilders have in making the industry more competitive. And much depends on the protectionist attitude of other countries. Forecasts there are, and always will be; and very helpful they can be on occasion. But, under these circumstances, I do not think we want to base far-reaching and perhaps irreversible decisions on such uncertain prophecies.

In paragraphs 35 to 37, the Select Committee has referred to the European Council's Directive in aid to shipbuilding. I think it might be helpful if I expanded a little on the link between the Directive and the Communication. The Commission's Communication makes proposals for an industrial policy in a particular sector; it requires the agreement of the Council before any of its proposals can be implemented. Until the Council has reached a formal decision on any aspect, it remains as a set of proposals only, and is without any effect.

The Directive, on the other hand, is in the nature of a statutory instrument. It too requires the approval of the Council but it is of a different character to the Communication altogether. It is concerned not with shipbuilding policy, but with competition, and it is important to bear that in mind.

In general, the Treaty does not permit state production aids which distort competition; but where there is a crisis, they may become essential for a time, and it is so in shipbuilding. The Directive therefore sets out the kind of conditions under which certain State aids may be regarded as still being compatible with the Rome Treaty, and in that sense it is a permissive document. The Directive naturally says that one of the conditions is that such aids must be consistent with any agreed Community policy in the shipbuilding sector; but we do not yet have one.

The Committee suggests that the Directive can be seen as an attempt to coordinate national reactions to the shipbuilding crisis, to co-ordinate the policies of Member States to minimise discriminatory measures and avoid competitive subsidy. I think it is important to make clear that these principles apply inside the EEC; what the Directive aims to do is prevent distortion of internal community competition, while permitting Member States to deploy subsidies to preserve a reasonable level of orders. And it cannot take any part in the development of a Community policy until that policy has been agreed. It is perhaps at that point where my noble friend's remarks about substandard shipping might have application. There might be a Community policy on that.

It is important to make this clear because there have been suggestions that the Directive is the means by which the Commission intends to enforce the contraction proposals set out in the communication. Nothing could be further from the truth. The communication, as I have said, requires the approval of Council before it has any force, and the Directive's references to a Common community shipbuilding policy thus have no effect for the present.

I come finally to the Committee's opinion. They suggest, in paragraph 38, that the principal objective put forward in the Communication—that is, to create a competitive European shipbuilding industry which can meet a significant proportion of the Community's large requirement for ships—is an objective which will be widely accepted. That is so, my Lords; all Member States accept that objective.

The Committee has also noted, again correctly, that national policies can still continue within the framework of a Community policy. That is also what the Government should like to see. While the disparities of approach between Member States, and the differing factors to be taken into account make a wholly uniform policy very difficult to achieve, we believe that there should be room for every Member State's special requirements within a Community policy. The Community, moreover, needs common objectives in this difficult sector in order to be able to pursue a well-reasoned and effective international policy in the OECD, where it is equally essential for there to be agreement on common aims, and on the avoidance of "beggar-my-neighbour" policies. Perhaps, my Lords, it might be a convenient moment to say that this is an area where the proposals of the noble Viscount, Lord Simons, about "scrap and build" and the filling of segregated ballast tanks, and the proposals of my noble friend, should receive consideration.

The Committee is also right to note that the aims of British Shipbuilders to survive the slump and to become competitive are not incompatible with negotiations through the Community. I would go further than that; I would say that British Shipbuilders' objectives are wholly consistent with the Community's objectives, and will be an important factor in their achievement.

I have already remarked that the Government has accepted the inevitability of some contraction in the industry, and has made provision for it in the form of the Shipbuilding (Redundancy Payments) Act 1978, the schemes under which were laid before the House last week. But in their discussion of this question, the Committee have stated that the attempt to sustain a higher output or greater capacity than the market will bear can only lead to the continuance of aids or protective measures for a considerable period of time, which would be incompatible with the fourth Directive. That may be so, my Lords, but the fact of the matter is that the world cannot sustain a higher output or higher capacity than the market requires; the world will order just so many ships, according to its needs; and the real question to be resolved is: Who is going to build them?

The Community is agreed that it must have the capability of satisfying at least a considerable proportion of its own very considerable requirements, and if the Council decides that this is its policy, then the Commission must, of course, take this into account in administering the Directive, even if, for a time, that policy requires the continuance of aids. I think the noble Lord, Lord Campbell of Croy, asked for some wider information on this point. He asked me about the approval of the United Kingdom Intervention Fund for 1978–79, if I understood him correctly.

Lord CAMPBELL of CROY

My Lords, perhaps I may remind the noble Lord. I asked whether he could tell us any more about the redundancy schemes, but I realise that he may not be able to do so at three or four hours' notice. Secondly, on the point to which he has just referred, I recorded that the Government had announced limits for this year and the previous year for the Intervention Fund, but it was reported in the Press—notably, today in The Times—that the Government were seeking approval of the Commission for yet some other subsidy scheme. I asked—if it was not confidential—whether he could tell us what the scheme was.

Lord WINTERBOTTOM

My Lords, I believe that I can help on this matter. It is the case that we are in discussion with the Commission about a second tranche of Intervention Fund monies. Any delay in arriving at agreement is nothing to do with this Commission communication to the Council which, as I explained, has no force in the context of the Directive. I cannot give any details of the Government's proposals while they are still having these discussions. But the noble Lord is correct, discussions are taking place. As regards shipbuilding redundancy schemes, schemes for Great Britain and Northern Ireland were laid before both Houses on 6th July and will be debated before the Summer adjournment. That might be a convenient point at which to probe further.

I now come to the point at which I have to express rather more disagreement with the Select Committee. But, first, let me say that I was very glad to note their criticism of the Commission's unfortunate emphasis on selecting its so-called quantitative indicator as a target for capacity reduction. This was indeed a major error by the Commission, and one which I think they now recognise. Where we disagree with the Select Committee is in suggesting that we should substitute an order of reduction in capacity for the precise figure put forward by the Commission.

With respect, my Lords, there is very little difference between that and what the Commission has suggested. For what is an order of reduction? It means a quantification of some kind, presumably in percentage terms, and to say that we shall reduce capacity by 45 per cent. is the same, for all practical purposes, as saying that we shall reduce to 2.4 million cgrt. I think I have said enough in my earlier remarks to show that this is not the correct approach in all the circumstances.

The Committee goes on to suggest that the Community will have to face the problem of apportioning capacity between Member States. It says that would be a difficult task; I say that it would be impossible and that it would in any case take so long to agree that we should be in the middle of the next boom before any agreement was reached, by which time such a policy would no longer be necessary, of course.

No, my Lords, let us be practical. We know that we shall be forced to lose some capacity because of this disastrous world slump; but let is not give it away unnecessarily, and especially let us not give it away on the basis of such uncertain forecasts as those we have seen. We urge the Community to adopt the United Kingdom approach; to accept that some contraction will be forced upon us, but to plan to meet it in a flexible and humane way; to give our industry the opportunity to become competitive; to take advantage of the return to normal market conditions and to fulfil the fundamental objective of a Community shipbuilding policy which the Committee, the Government and all other Member States support.

Lastly, I should like to refer to the Select Committee's comment on the proposal to establish an advisory committee of senior officials from Member States. In fact, if that is all the Coin-mission wished to have, it could be said that such machinery already existed. But in fact, as is clear from Annex III to the Communication, the Commission sought a standing body which would "implement and co-ordinate common objectives" in this sector. That goes considerably further than merely supplementing existing machinery with an advisory committee to discuss community shipbuilding policy.

In our view, and in the view of most Member States, it would not have been appropriate to establish a committee on the lines originally proposed by the Commission until there was some agreement on the lines of a Community policy—at which stage we would wish to see whether there would, in fact, be any role for a committee in its implementation. As to the question of an advisory committee, I have already noted that such machinery already exists; indeed before formally submitting their communication of two years ago, the Commission organised a series of consultative meetings with shipbuilding experts from Member States which at least ensured that they got off on the right foot, even if the proposals did not in the end meet with unanimous approval.

Baroness WARD of NORTH TYNESIDE

My Lords, I am sorry to interrupt the noble Lord but, for somebody like me who does not know these things, could he perhaps let us know the names of the members of the Committee?

Lord WINTERBOTTOM

My Lords, I will find out and let the noble Baroness know. I cannot at this moment give names because I do not know them. As to the Committee's point that a Committee might be useful for developing a common position for external negotiations, as the Committee has itself noted in paragraph 33 of its report, the Community has had a common negotiating position on shipbuilding in the OECD since 1976, and has had some success. This policy is developed by a group of experts from Member States in a special series of co-ordination meetings chaired by the Presidency of the day.

I hope, my Lords, that I have made the Government's position clear, though at some inordinate length. We welcome the Commission's communication, even though we are disappointed by its approach and emphasis. We welcome the signs that the Commission wants to consult Member States on a regular basis about the development of a Community shipbuilding policy. We, like the Committee, recognise that the Commission's communication is merely a beginning, or a framework, and that as the Commission itself has said, there is still a good deal more to come by way of detailed proposals on several aspects. We believe that this country is already well embarked on the kind of policy that the Community as a whole should pursue, and we shall press hard, in the discussions, for a Community policy on these lines, and for common measures which will be supplementary or complementary to our national policies,—

Viscount SIMON

My Lords, before the noble Lord sits down, may I ask him to go back for a moment to the very interesting argument he advanced about having a flexible policy and eschewing any quantitative figures? Surely one of the most essential things we have to try to do if we possibly can is to get some agreement with the Japanese to reduce their capacity. Is there any hope of getting such an agreement with the Japanese if we are going to say that we are going to have whatever capacity we think we need?

Lord WINTERBOTTOM

My Lords, that is a very good point and it should be answered, but I was speaking in the main on the role of Britain within the EEC. Presumably if we can get an EEC policy then the negotiations with the Japanese will be possible; but, while the Community as yet has no policy, we must do the best we can for our own industry. That is, I think, the view of Her Majesty's Government. Despite the gloom which generally pervades, shipbuilding does have a future within the Community and it is up to the Community as a whole to see that that future is not jeopardised by damaging short-term market distortions caused by the slump, while at the same time both pursuing its internal policies and making its contribution to international understanding and consensus through the OECD. I hope that the noble Lord who introduced this debate has received at least some form of answer to the points that he raised.

7.36 p.m.

Lord RHODES

My Lords, we are very grateful for that answer. I thought we had made a very clear statement, and I was surprised that the 80 per cent. and the 30 per cent. got so muddled. I think if those figures had been read properly they would have been clear. The report says: up to 80 per cent. of the industry's annual merchant output is sold to British shipowners, representing about 30 per cent. of their total requirement. Thus the United Kingdom remains a net importer of ships". I do not know how we could have made it more obvious than that.

With regard to the 2.4 and the difficulties with the Associated Western European Shipbuilders that the Minister seemed to be in difficulties about, may I explain very briefly—I shall not keep the House long —that the idea was that Japan should have four, that Europe as a whole should have four and that the remainder of world shipbuilders should have the other four. I made it clear that one of the four assumptions that were made to arrive at the figure of 2.4 was that Europe and the EEC would work on the basis of 60:40: the 2.4 and 4 is equivalent to a ratio of 60:40.

I should like to make encouraging noises about the naval shipbuilding and the remarks that have been made on the quality of our report. We welcome, too, everybody who has spoken in this debate, and particularly those representatives of this Parliament who go to Brussels. It is heartening to know that our reports have enjoyed much popularity in Europe. The Minister referred to co-ordination of aid and I should like to remind him, so that he can take the information, chew over, of the differences in aid. Ours really is a dead weight on productivity, and if he will just have a look at the way in which our aid has been administered he will find that it discourages productivity rather than encourages it, as the Belgian system does.

I think we ought to send a message to the Commission to pursue what it has been doing in the way of its good work. The possibility is that the noble Lord. Lord Trevelyan, would invite Viscount Davignon to come to this country, as he has accepted an invitation to go to the Paris Economic Commission. It would be a very good thing, as well as being informative, not only for the Committee but for Parliament as a whole.

On Question, Motion agreed to.